Legal Affairs

Another Twist in Ex-Broadcom CEO Nicholas' Legal Fight

On Feb. 2, U.S. District Judge Cormac J. Carney will listen as prosecutors try to explain why a drug indictment against Broadcom (BRCM) co-founder and former CEO Henry T. Nicholas III should not be thrown out. Nicholas' attorneys argue, in a petition before the U.S. Bankruptcy Court, that one of the government's key witnesses in the case is unreliable. Judge Carney dismissed fraud and conspiracy charges in the stock-option backdating case against Nicholas and former CFO William Ruehle on Dec. 15, citing "shameful" actions by federal prosecutors toward witnesses in that trial which the judge wrote were "contrary to American values of decency and justice." The judge then ordered prosecutors to show why the government's drug case against Nicholas shouldn't be dismissed, as well. He cautioned the government that "there will be other evidence of government misconduct introduced" at trial. Included in that, the judge said, was "the government's threat" to subpoena Nicholas' 13-year-old son to testify against his father before a grand jury. Nicholas' legal team may be hoping to give the judge more reasons to question the government's allegations. On Nov. 13, Nicholas' lawyers filed a petition in a bankruptcy case involving Roman James, one of the government's top witnesses in support of the drug charges, alleging he may not be reliable, in part, because of a business deal gone wrong with the former Broadcom CEO. In 1999, James began building a room beneath Nicholas' Orange County (Calif.) home where some of the alleged illegal activities were said to have taken place. James is one of the two main witnesses against Nicholas in the drug case. Among the government's charges in its drug case: that the 48-year-old Nicholas "spiked the drinks of others with the drug ecstasy without their knowledge," including other technology executives and Broadcom customers, and that he "hired prostitutes and escorts for himself and customers." Nicholas was charged with three counts related to acquiring or distributing controlled substances. Bankruptcy PetitionThe bankruptcy petition that Nicholas' legal team has filed argues that James should be required to pay $858,000 which a California court had awarded Nicholas in a suit that arose after Nicholas fired the contractor for alleged "deficient" work. The petition also alleges that James "and cohorts" tried to extort $14 million from Nicholas and threatened to send a lawsuit complaint to newspapers "that contained false, salacious and gratuitous allegations." Initially, the suit says, Nicholas agreed to a settlement that was "substantially less than demanded." James later tried to sue Nicholas, however, alleging that the then-Broadcom CEO violated a confidentiality agreement. Nicholas was awarded the $858,000. Sprinkled throughout the document are allegations that James hid his assets by funneling income through a company owned by a friend, lied in depositions, and filed inaccurate information with the bankruptcy court. James "is an individual who has engaged in the serial evasion of significant financial obligations," Nicholas' petition alleges. James' lawyer argues that Nicholas is out of bounds in trying to use the bankruptcy case to get the drug case dropped. "They are using the bankruptcy proceeding to stalk Mr. James," says Kelly Johnson, who represents James. Johnson says the allegations made in the petition "are unfounded or relate to events well before the bankruptcy petition" and are "twisted to make Roman look bad." Although Nicholas' legal team refuses to say whether they will use the bankruptcy petition to discredit James in the Feb. 2 hearing, they clearly believe it casts doubt on whether the government should rely on him in the drug case. "It is inconceivable to us that James would have any use as a prosecution witness in Dr. Nicholas' narcotics trial," says Nicholas' lawyer, John Potter, a former assistant U.S. attorney. "The bankruptcy complaint alleges that James engaged in fraudulent transactions, concealed assets from creditors, structured payments through conduits, held property through nominees, gave inconsistent testimony under oath, and failed to pay taxes and file tax returns." Witness CredibilityLegal experts believe the bankruptcy case could hurt James' credibility as a witness in the drug case against Nicholas. "Generally, if the government sees something like this, they'll take a long look at the credibility of their witness," says Mary Carter Andrues, a partner at the Howrey LLP office in Los Angeles, who specializes in white-collar criminal cases. Of particular concern, she says, are claims in the bankruptcy filing that James might have lied under oath at prior hearings. Still, the government likely would proceed if it has physical evidence in addition to the testimony of James and other witnesses, says Andrues. The government's four-count indictment contains language that seems to indicate it has physical evidence. The indictment mentions invoices for "supplies, party favors, refreshments and E (ecstasy)" that it contends were for drugs such as cocaine and methamphetamine, in addition to ecstasy. But the indictment doesn't mention who filed or signed the invoices. A spokesman for the U.S. Attorney's office in Los Angeles declined to comment on the specific evidence that the government plans to introduce in the trial.

Grover covers the media and entertainment industry for Bloomberg Businessweek in Los Angeles.